06
Nov
By Mike Pfefferman
Mortgage Tips

Understanding an Appraisal Contingency in Your Home Purchase

When buying a home, you have the option to include contingencies in your purchase contract. These protect you by setting certain conditions that must be met for the contract to remain valid. If any contingency isn’t satisfied, you can back out of the sale without penalty. Three main types of contingencies help protect buyers: appraisal, financing, and home inspection contingencies. Here’s how each can impact your home buying experience.

The Appraisal Contingency

An appraisal contingency allows you to step back from the sale if the property appraises for less than the agreed purchase price. Since lenders typically only loan up to the appraised value of the home, this contingency is essential to avoid overpaying. If the home appraisal is lower than expected, you can either renegotiate the price with the seller, make up the difference with a larger down payment, or back out of the sale without losing your deposit.

In competitive markets, leaving out this contingency can make you a more attractive buyer, but it’s a trade-off that could leave you paying above market value.

The Financing Contingency

If you’re relying on a mortgage, a financing contingency protects you if you’re unable to secure full loan approval. While pre-approval offers an estimate of what you can afford, the official loan approval depends on final underwriting. With this contingency in place, if your loan falls through, you can back out of the deal and recover your deposit.

The Home Inspection Contingency

This contingency gives you peace of mind by allowing you to have the home inspected for structural issues, hidden damage, or safety concerns. If any serious issues arise, you can negotiate repairs with the seller or even back out of the purchase. A professional home inspector can spot things the average buyer may miss, so this contingency is highly recommended for most homebuyers.

What Happens If the Appraisal is Too Low?

If the property’s appraised value is below the agreed price, you have three main options:

  1. Increase your down payment to cover the difference.
  2. Negotiate a lower purchase price with the seller.
  3. Use the appraisal contingency to walk away from the deal and get your deposit back.

An appraisal contingency can give you leverage in price negotiations, especially if the seller wants to avoid losing the sale. However, in a competitive market, waiving this contingency can make your offer more appealing, as it signals to the seller your commitment to the purchase regardless of appraisal.

Each contingency serves as a financial safeguard, providing flexibility and protection at different stages of the buying process. Including these contingencies in your offer ensures you’re not cornered into a deal that could end up costing you more than anticipated.

05
Nov
By Mike Pfefferman
Home Mortgages

Understanding “Cash to Close” in Your Home Buying Journey

If you’ve received your Closing Disclosure from your lender, congratulations! You’re almost at the finish line of your home buying journey, ready to celebrate with keys in hand. The Closing Disclosure, or CD, is provided at least three business days before your closing appointment and details your loan terms, projected monthly payments, and the much-discussed “cash to close.” But what exactly is “cash to close,” and how is it calculated?

What is “Cash to Close”?

“Cash to close” is the total amount you’ll need to bring to your closing appointment to finalize your home purchase. It includes your down payment and closing costs, which are necessary to officially transfer ownership of the property to you. Each fee has a specific purpose, ensuring the legal and financial security of both you and the lender.

Breaking Down Closing Costs

Closing costs are part of the cash to close and cover a range of legal, administrative, and logistical fees associated with your mortgage. Here’s a look at some common components:

  • Appraisal Fees: Typically paid by the buyer, this fee covers the cost of determining the fair market value of the home.
  • Attorney Fees: These include charges for preparing closing documents and conducting a title search.
  • Title Insurance: Provides protection if a third party claims ownership of the property.
  • Application & Origination Fees: Cover lender costs for processing and underwriting your loan.
  • Mortgage Insurance: Required for certain loans, this protects the lender if you default.
  • Funding Fees: Charged for specific loan types like FHA, USDA, or VA loans.
  • Pest Inspection Fees: Usually for termite inspections, particularly in certain areas or on specific property types.

Each of these fees will be listed individually on your CD and contribute to your total cash to close amount. Some lenders may allow you to roll certain costs into your loan, but this varies and depends on factors like loan type and lender policies.

Earnest Money Deposit (EMD) and Down Payment

If you made an earnest money deposit when you agreed to purchase the home, this amount is held in escrow and typically applied toward your closing costs. The down payment, a major part of the cash to close, is based on your loan type and the amount you agreed to put down, which can range from as little as 0% to as much as 20% or more of the purchase price. Your lender will review and confirm these details well before closing.

Payment Options for Closing Costs

Lenders usually require a certified payment method. Here are a few options to consider:

  • Cashier’s Check: The most common form, which you can get from your bank. You’ll need the exact amount and payee information.
  • Certified Check: Another bank-issued option, ensuring funds are available and verified.
  • Wire Transfer: Convenient but requires advanced planning. Wire transfers can take a few days and should be carefully verified to avoid fraud.

Note: Cash, personal checks, and credit/debit cards aren’t accepted due to the high amounts and to ensure clear documentation of funds.

Verify all details on your Closing Disclosure and double-check your payment method with your lender. By staying informed and preparing early, you can ensure a seamless transition to homeownership.

Understanding “cash to close” can alleviate some of the uncertainty around finalizing your mortgage and help you walk confidently into your new home!

04
Nov
By Mike Pfefferman
Financial Reports

What’s Ahead For Mortgage Rates This Week – November 4th, 2024

This week, the Federal Reserve’s preferred inflation data was released, and the results met expectations. This, along with recent GDP estimates, employment reports, and personal income/spending figures, paints a stable economic picture. It suggests that we may be on track for the Federal Reserve’s next round of rate cuts. The Federal Reserve has consistently stated its 2% inflation target and current figures show inflation at 2.1%. This indicates that a ‘soft landing’ for the economy could be within reach.

PCI Index

Prices in the U.S. rose modestly in September, but not enough to suggest inflation is rekindling or to prevent the Federal Reserve from cutting interest rates. The Fed’s preferred PCE index moved up 0.2% last month, the government said Thursday. That matched the forecast of economists polled by The Wall Street Journal.

The increase in inflation in the past 12 months slowed to 2.1% from 2.3%, leaving it just a hair above the Fed’s 2% target.

Consumer Spending

Consumer spending and incomes both rose in September, signaling continued strength in the primary driver of the U.S. economy. Household spending increased by a solid 0.5% for the month, surpassing the 0.4% rise economists had anticipated in a Wall Street Journal poll. Incomes also grew by 0.3% in September. Overall, consumer spending surged by 3.7% in the third quarter, marking the largest increase in a year and a half.

GDP (Estimates)

The U.S. grew at a brisk 2.8% annual pace in the third quarter, powered by another sharp increase in consumer spending that appears primed to extend a four-year-old economic expansion into next year.

Primary Mortgage Market Survey Index

  • 15-Yr FRM rates saw an increase of 0.28% with the current rate at 5.99%
  • 30-Yr FRM rates saw an increase of 0.18% with the current rate at 6.72%

MND Rate Index

  • 30-Yr FHA rates saw a 0.26% increase for this week. Current rates at 6.62%
  • 30-Yr VA rates saw a 0.26% increase for this week. Current rates at 6.64%

Jobless Claims

Initial Claims were reported to be 216,000 compared to the expected claims of 228,000. The prior week landed at 227,000.

What’s Ahead

Next week, the Federal Reserve is set to announce another rate decision, followed by several other important reports. These include final manufacturing figures from S&P Global PMI data, the University of Michigan Consumer Sentiment report, and Consumer Credit reports.